There are opportunities in broad international and emerging markets for investors willing to challenge home country bias.
U.S. equities have outperformed international markets for the longest period in history, suggesting their run is near its end, as U.S. and international markets leadership has historically been cyclical.
Constructive fundamentals for international markets indicate that they could pull ahead in the near future. However, many investors are now significantly underweight to international stocks, positioning them to miss out when international markets rotate back into favor.
From a valuation basis, broad international and emerging markets present much more attractive opportunities than the U.S. market. Not only are international stocks trading at more attractive multiples than U.S. stocks, but they are also currently cheaper than they’ve been 75% of the time over the past 30 years, according to Hartford Funds.
The attractive valuations found in international markets present a lucrative opportunity, as investing in companies with lower valuations offers greater upside opportunity.
Additionally, the regime change, characterized by higher inflation and interest rates going forward, also strengthens the outlook for international markets.
Historically, international stocks have tended to perform well during periods of high inflation that has peaked and is beginning to subside. According to Hartford Funds, the longer inflation moderately recedes but remains above trend, the stronger the tailwind for international stocks.
Historically, outperformance during periods of elevated inflation can be attributed to international markets’ noticeable tilt toward value. International markets offer broader exposure to cyclical sectors such as financials, materials, industrials, and energy, which have historically helped offset inflation.
3 ETFs to Consider to Capture Opportunities in International Markets
Three funds to consider when adding international exposure are the Hartford Multifactor Diversified International ETF (RODE), the Hartford Multifactor Developed Markets (ex-US) ETF (RODM), and the Hartford Multifactor Emerging Markets ETF (ROAM).
RODM provides exposure to developed non-U.S. equities, while ROAM offers broad exposure to emerging market equities. Conversely, RODE provides exposure to both emerging markets and developed non-U.S. equities.
RODM, ROAM, and RODE seek to reduce volatility by targeting a 15% volatility reduction over a complete market cycle.
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This article was prepared as part of Hartford Funds paid sponsorship with VettaFi. Hartford Funds is not affiliated with VettaFi and was not involved in drafting this article. The opinions and forecasts expressed are solely those of VettaFi. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, a recommendation for any product or as investment advice.